Venezuela, the country where everything was done right

hambre-en-venezuela-630x300You would hardly notice from the media in many europeans countries, but there is an economic catastrophe going on in Venezuela. Many economic pundit all over Europe would be surprised with this outcome. After all, since Chavez raised to power, Venezuela has made all the right economic policy choices (according to those economic pundits).

Without an European Commission pushing for balanced budgets, Venezuela could follow an expansionary budgetary policy, with high public deficits that, as so many try to explain us, pay for themselves thanks to the Keynesian multiplier. To ensure a fair distribution of the burden, Venezuela has a corporate tax of 34% and a highly progressive personal income tax. Combined with capital controls, this ensures that the rich can not escape paying their fair share.

On the other hand, the Chavism knows how to protect workers. In Venezuela it is almost impossible to fire someone after the first month of employment. Venezuela ended job insecurity. Workers live in the comfort of knowing that they can never be fired regardless of their performance which, as everyone tells us, increases their job satisfaction and productivity. Furthermore, to set the example to the private sector, the government defined a 4 days working-week.

Minimum wage increases every 6 months and it is now the triple of what it was 2 years ago. As we are told, minimum wage does not generate unemployment. On the contrary, raising the minimum wage increases consumption and, thus, employment. The higher the minimum wage, the more consumption and more employment.

The government has great control on all the strategic sectors: transportation, education, energy, banking and even food distribution. It is not the evil profit, but the common good, that drives management decisions in those companies. The strong hand of the government in the banking sector ensured that the resource allocation was made for the greater good. In the energy sector, the population pays very little for the 20 hours of daily electricity they have access to.

Retiremente age is 60 for men and 55 for women, which leaves a lot of jobs for younger people. After 15 years contributing, you are entitled to a pension aligned with the minimum wage.

Many political pundits in Europe would struggle to identify one wrong economic policy in Venezuela. In reality, they did everything “right”.

Advertisements

Eurosceptics do it better

euroscepticism On December 28th, there was an article in the Opinion pages of The Daily Telegraph that must have filled the hearts of most British eurosceptics with hope. In it, Leo McKinstry argued that “the EU is in desperate trouble”, for its “edifice of federalism is crumbling, broken by its own ruinous contradictions and spectacular failures”: the single currency and the economic policies it implies have, McKinstry writes, created a “political fallout” in countries like Italy, Greece, Portugal and Spain, where extremist parties have earned an ever greater support from the electorate; and the migrant crisis, he warns, is “threatening to tear apart the social fabric of Europe”, as “fiercely anti-immigration, anti-EU movements like the Front National in France, the Dutch Party for Free and the Swedish Democrats” also attract more and more voters.

Optimists and Europhiles might read these words and take them to be nothing more than gloomy wishful thinking to be expected from the reactionary Telegraph. But the same could hardly be said of The New York Times and its Sunday Magazine, which – in its December 20th issue – wondered whether the EU has “reached its breaking point”: Jim Yardley, the publication’s Rome bureau chief, noted how Europe is facing the simultaneous threats of terrorism in its cities, of an aggressive autocratic Russia in its periphery, of the migrant crisis in its borders, while a stagnant economy and a rising political extremism in countries like France and Belgium are rotting their democracies from within. And to complicate things further, Yardley argued, the EU is particularly ill-suited to deal with such issues: “European Union institutions have vast regulatory powers over everything from data roaming to environmental standards to trade deals to antitrust rules”, but “often lack the structural power, political decisiveness and bureaucratic efficiency to act collectively when faced with big, unforeseen problems like the Greek crisis, the surge of migrants or the standoff with Putin over Ukraine. National leaders are often forced to decide these issues in marathon emergency meetings in Brussels at the European Council, and even then, only incremental progress is made”, producing “a perfect recipe for public cynicism: a system of intrusive regulators whose tentacles can spread into your personal life, even as leaders appear indecisive in the face of genuine crises”.

And yet, in Brussels, no one either is aware of these problems or seems to care. On the last December 11th, The Guardian reported that the EU Commission was devising plans to “to strip national governments of authority over their borders in an emergency and to create a border guards force to police the EU’s frontiers, supervise asylum claims, and detain and deport failed asylum seekers”, in response to the refugee crisis. As Ian Traynor, the report’s author, explained, while “in theory, the new regime and the powers ceded to Brussels over its operation apply to all 26 countries in Europe’s free-travel Schengen area”, it would, “in practice”, only “apply to the external borders of the Schengen area, so would not greatly affect countries such as Germany that are surrounded by other Schengen nations”.

In other words, some countries – Italy, Greece, Spain – would be subjected to policy decisions taken by other countries – Germany, Poland, Austria – that would not bear the brunt of their consequences. Perhaps these plans won’t ever be put into effect, once the lawmaking process in Brussels stalls and indecision takes over. But the mere fact that people with responsibilities within the EU came up with such an idea is a sign that “euroenthusiasts” have failed to grasp what the events of the last decade or so should have made clear to them: that the EU has gone too far in the political “integration” of its member states.

Since its conception, the “European project” was meant to bind the countries that joined it in such a manner that going to war with one another would never again be in their interest. It began by pooling together the energy resources of France, Germany, Italy, Luxembourg, the Netherlands and Belgium within the European Coal and Steel Community. And it grew, not only geographically (with the multiple enlargements taking in new members) but in scope, with consecutive advances in transferring powers and (in “Eurocrat” parlance) “competences” from national states to Brussels. After all, the “project” was always meant to achieve an “ever closer union”.

“Europe’s” founders, however, understood how that process should only be carried out by way of “small steps”, to ensure that none of those ever jeopardized the fundamental interests of the club’s membership. But from the 1980’s onwards, with the European Single Act and the road towards the 1992 Maastricht Treaty – and later culminating in the Lisbon-Treaty-Formerly-Known-as-The-European-Constitution, that prudent outlook was discarded.

And so it was that, for the last 30 years, the “steps” taken by “Europe” have been too great, both in quantity and in length. The increasing number of policies subject to qualified majority voting and of powers transferred from national parliaments to the “Community’s”’ sphere meant that in a growing number of issues the various countries of the EU have lost the power to defend what their electorates believe – rightly or wrongly – to be their own national interest. The result, aside from weakening the health of each nation’s democracies, was to change “Europe” into a conflict-generating machine between the various European countries, instead of the peace-building institution it was meant to be.

Back in 2003, just as the “Union” became far from united on whether to side with the Americans on their intervention in Iraq or not, Valery Giscard d’Estaing and the other proponents of the “Constitution” kept pushing for a Common Foreign Policy and a Common European Army. At the time, the Portuguese columnist José Pacheco Pereira wrote an op-ed piece warning that if such plans were brought into effect and a situation like the dispute over the Iraq war would arise, what in 2003 was a simple difference of opinion between sovereign countries with diverging interests, would by that point turn into an institutional conflict within the EU, leading to its disintegration and possibly worse.

Looking back, it’s easier to see that Pereira didn’t need to imagine such a scenario. There already was – and still is – one not-merely-hypothetical-but-very-much-real factor bringing discord into the “Union” and threatening to pull it apart: the Euro.

What happened with the EU’s single currency was exemplary (albeit in the worst sense the word can have) of the problem. It was born, as most things in “Europe” are, out of a bargain between France and Germany, in which the former supported the latter’s unification, and Germany gave up its old currency and at least some control over its traditionally tight monetary policy. It allowed for a gigantic leap, symbolically and practically, towards a true “European Union”, a political entity with powers previously intrinsically linked with national sovereignty. What it created, however, was far from the harmonious and free-from-nationalist-and-self-interested-feelings space from Monchique to Cape Greco and Limassol to Nuorgam in which everyone would join in singing the “Ode to Joy” in multiple languages but in tune and in unison.

By joining within the same monetary area economic realities so distinct as to make them have incompatible economic policy needs, the Euro meant, on the one hand, a currency undervaluation in Germany with the corresponding loss in value of its citizens’ income, and on the other hand, a currency overvaluation on countries with less competitive and attractive economies (like Greece or my native Portugal), posing significant obstacles to those who, unfortunate enough to live in them, wished to export goods or services that could otherwise have benefited from a weaker currency that would make them more appealing to holders of stronger currencies.

At the same time, and to make matters worse, the euro created a bubble in those countries’ sovereign debt bonds: comfortably seated under the same monetary umbrella that sheltered Germany; theoretically obliged to meet certain budgetary criteria aiming to protect the euro’s stability; and with the implied promise that, should things unravel, the simple fact that they shared a currency would make countries like Germany pay for the solvency of countries like Portugal, Greece or Italy; these countries were able to borrow money for German-level interest rates, while following Greek-style budgetary policies. Once the subprime crisis in American crossed the Atlantic, it didn’t take long for the monetary umbrella to become powerless to shelter them from the fears of their creditors.

Once Greece or Portugal were on the brink of bankruptcy and had to be bailed out, the need to do so without jeopardizing the euro’s credibility as a stable currency created the terrible combination that has brought us to our current predicament: paying for the “bailout packages” by the richest countries angered their voters due to their perception that they are paying for the “sloth” and “profligacy” of the other countries; in Greece or Portugal, the “harsh” measures and the loss of budgetary autonomy inherent to those packages and the EU’s Budget Treaty made their electorates despise the “lack of solidarity” of the “austeritarian” rich; and the solutions that might help overcome the worst economic and financial consequences of this arrangement – a deeper economic and political integration, with Eurobonds, euro-wide welfare benefits, and new and wider “competences” over national budgets given to the (undemocratic) EU institutions – would end up worsening not just the problem of the lack of democratic control of political decision-making, but also – especially – that increasingly serious “war of electorates” created by the way the euro and the EU were designed.

One thing “euroenthusiasts” are not able to say is that they hadn’t been warned. For exemple, in 1997, the Nobel laureate in Economics Milton Friedman famously wrote an article in which he argued that the Euro would be a huge mistake: The EU, Friedman argued, lacked the prerequisite attributes that would allow for a sensible adoption of a common currency between its member states:

“Europe’s common market is composed of separate nations, whose residents speak different languages, have different customs, and have far greater loyalty and attachment to their own country than to the common market or to the idea of “Europe.” Despite being a free trade area, goods move less freely than in the United States, and so does capital. The European Commission based in Brussels, indeed, spends a small fraction of the total spent by governments in the member countries. They, not the European Union’s bureaucracies, are the important political entities. Moreover, regulation of industrial and employment practices is more extensive than in the United States, and differs far more from country to country than from American state to American state. As a result, wages and prices in Europe are more rigid, and labor less mobile. In those circumstances, flexible exchange rates provide an extremely useful adjustment mechanism.”

Adopting the Euro, then, Friedman warned, “would have the opposite effect” of what its advocates intended:

“It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues. Political unity can pave the way for monetary unity. Monetary unity imposed under unfavorable conditions will prove a barrier to the achievement of political unity.”

And Friedman was far from a lonely voice. Today, as the EU and its various member states face the refugee crisis and its political consequences, it would be wise of them to mind the lesson of the euro cautionary tale: sometimes, Eurosceptics do it better; sometimes, a healthy dose of Euroscepticism is exactly what “Europe” needs if it wants to be healthy. The EU was a stabilizing element in the European continent for decades because it served the interests of those who’d joined it. By taking too many steps too far towards “an ever closer union”, those countries lost their ability to protect those interests. And by making itself unable to serve its members’ interests, the EU is making it ever more likely that one day, those countries will no longer be interested in being a part of it.

 

Bruno 2014Bruno Alves lives in Caxias, Portugal, but sometimes wishes he didn’t. He writes about politics, film and TV for O Insurgente, is an op-ed contributor to the Lisbon daily Diário Económico and a weekly commentator for its cable TV channel ETV, and has written for the American online film magazine Bright Wall/Dark Room and for the British website CapX. Bruno welcomes both writing job offers and insults at alves.bm@netcabo.pt, and you can also find him on Twitter @ba_lifeofbruno.

What’s next for Portugal?

naom_534af975b6b0eLike it has always happened for the last 40 years of democracy, the Portuguese President asked the leader of the most voted party to form government. Like every president before, he gave a political speech on what he believes the next government should do. He is also far from being the first president to warn about the risks of having communists in power. But, unlike what has always been the democratic tradition, the second most voted party will not allow the most voted party to form a minority government. It is their constitutional right to do so. So what is next? Here is what the future holds for Portugal:

Over the next few weeks:

1. The current PM will form a government with some people of his close group MPs and a few moderate party members. It will be hard to get good names on-board for a government that might not be around for more than 2 weeks
2. The government will not pass in parliament due to the votes of the socialists, left radicals and communists
3. The president will then ask the leader of the 2nd most voted party to form government. The supporters of the idea of a coup in Portugal will be saying some other nonsense about some other country
4. Costa will form a government without members of the radical left or the communists. Radical left and communists let the government pass in parliamentary vote.
5. President Cavaco will warn about the lack of stability of the new solution and once again defend the tradition of the defeated centrist party to allow the other centrist party to lead the government

In November-January:
6. The socialist party will have to get its first budget approved. In order to do so, it will make changes in the labour law (making the labour market rigid) and eliminate some of the expense cuts of previous governments in agrrement with Left Radicals.
7. The first draft will not be approved in Brussels, but after a few rounds and over-optimistic assumptions on growth and tax collections, the budget will be approved in Brussels and by the Portuguese parliament
8. The minimum wage will increase in January
9. The centrist candidate Marcelo will be elected president in January. During the campaign, he will be intentionally ambiguous about what he would do in different political scenarios.

After January:
10. Growth will continue the path of 2015 but employment will stop increasing at the same rate
11. The left-wing parties will be united in the first months of the year. A short-lived increase in consumption will be used as proof that ending austerity works. External balance will deteriorate. Left parties will change labour law, banking regulations and increase capital taxes.
12. After missing the original budget targets, the government will have to get a new revised public budget approved somewhere in April. This will be a hard one.
13. If the communists don’t approve it, and the right wing parties do not change leadership, the revised budget will not pass in parliament and the government will fall
14. The socialist party will accuse the right wing pro-european parties of being irresponsible for not approving their Brussels negotiated budget. Brussels will put pressure
15. New elections in June
16. If the communists approve the budget, the government will stay in power until the end of 2016. Around that time, the budgetary difficulties for 2017 will be impossible to address by a government with support from communists and left radicals. The wounds of a 1 year unexpected and unwanted coalition will become obvious.
17. Points 13 and 14 will happen anyway just a few months later.
18. Elections in March 2017.

Open letter to Mr. Pritchard of The Telegraph

Dear Mr. Pritchard,

This thing is out of hand. I can understand your stance against the EU, the euro, your integrity and whatever it is that keeps you fuelling the confusion between British euroskepticism and any cause that may propel this idea, regardless of how lateral it may be.

The British public is uninformed about the Portuguese political system, which is fine since Portugal is just a small European country, not an economical driving force or a cultural mammoth in a globalised world. I don’t know much about the Hungarian or the Polish system either. Nevertheless, publishing misleading information to propel the euroskeptic cause is harmful and plain wrong.

There are euroskeptics in Portugal too. People that believe that the EU concept is wrong, that the euro is flawed, that the bureaucrats are grim, and that the whole thing is the hyper-statist mess we’ve been dreading ever since Lady Thatcher fathom that that’s what it would become. Why would you then choose to align with the position of Marxists-Leninists (not an insult, it’s how they describe themselves) if there’s a center- and right-wing conservative nucleus of euroskeptics ready to help you understand the intricacies of the Portuguese political system?

You proved yourself wrong with Syriza, will prove yourself wrong with the Portuguese inexistent Left Coalition – which you believe won the election – and, most likely, will prove yourself wrong again with the Spanish Podemos next December. There is a huge community of British expats in Spain – I personally know more than a dozen, living in Andalusia, owners of property and integral driving forces of local economies. Under Podemos they will be heavily taxed as full members of ‘the rich’ club, as identified by the smooth talking and iPad-bearing communists. Their MacBooks are already full throttle with silly manifests including lots of words like ‘the people’, ‘the rich’, ‘the oppression’, ‘neoliberals’, ‘imperialism’, and other dialectics-prone keywords within the Historical Materialist framework.

Euroskepticism and Eurodenial shouldn’t give in to marxist dialectics in order to thrive. Two wrongs don’t make a right. Mr. Pritchard, your are entitled to your opinion, just don’t try to pass it as factual, as it is not. You can’t escape the EU-soviet-like-bloc by creating another soviet-like-bloc.

Sincerely,

The Red Threat strikes again?

CRCi1H8WcAEgWjT

After losing the general elections that took place last week, the Socialist party seems determined to get the hold of power through unnatural coalitions with other left-wing parties. If you’re from the North of Europe this won’t sound that obnoxious. After all, countries such as Denmark or Finland have been governed by grand coalitions including parties from the left to the right. Except for one relevant detail. The coalition the Socialist party is proposing involves a trotskyist and a marxist-leninist party that have been very blunt regarding the role of Portugal in the Euro and in the European Union: out.

Now, even if they drop these radical proposals, thereby reducing the ideological distance to the Socialist party (which, after all, endorsed joining the EU and Euro), there will still be consequences. As part of the bargaining that is taking place, they may well demand disastrous conditions for giving the green light, possibly generating turmoil in the markets or in any reasonable person for that matter, at least one who remembers the outcome of radical left-wing experiments.

There is plenty of reason to worry. It takes a lot of time to push important reforms, and it took significant effort from the Portuguese people to put their public finances back in shape again. And all it takes, as Greece has witnessed, is a couple of months to throw it all away. This could well do it.

Greek political spectrum goes full circle in 6 years

The Left Platform has announced its break-up with Syriza, thus becoming Syriza’s Syriza for the next elections. Assuming they manage to get 20% of Syriza’s votes, the Left platform will get 8% of the votes in the next elections. According to the latest polls, this will give us the following results:

Syriza (now a moderate pro-austerity left party): 34%
New Democracy (moderate pro-austerity right wing party): 22%
Left Platform (extreme-left anti-austerity): 8%
Golden Dawn (extreme-right anti-austerity): 7%
To Potami (centrist): 8%
KKE (communist): 6%
ANEL (populist right): 5%

Six years ago, the results of the hellenic parliamentary elections were the following:

PASOK (moderate pro-austerity left party): 44%
New Democracy (moderate pro-austerity right wing party): 33%
KKE (communist): 8%
LAOS (populist right):6%
Syriza (by then extreme-left anti-austerity):5%

Do you see any relevant difference? I don’t. Six years later, Greece will have again a left pro-austerity party winning the elections, a moderate righ-wing party trailing behind, and an extremist anti-austerity left-wing party in the single digits. In politics, as in so many other areas, regression towards the mean is a powerful force .